An anticipated rebound in commercial real estate development in the United States has fallen flat in 2013, and it may be 2014 before it gains momentum, according to research from Citigroup Inc.
Public sector budgets at the state level have been squeezed, resulting in weak demand and delays in getting projects off the ground. Analysts also point to caution from developers and businesses, as well as a slowdown in global economic growth.
The report stated that the rebound of the non-residential construction industry in the U.S. “remains sporadic and fairly lackluster overall.” It noted that construction spending growth increased from 0 to 5 per cent in the first half of 2013, compared to growth of 5 to 15 per cent during the second half of 2012.
Commercial development across different sectors is expected to remain uneven, according to Citigroup. New construction in retail space and offices has been described as “muted, as these sectors face ongoing challenges. E-commerce and manufacturing and the shale energy sectors are growth sectors, though.
Several indicators are pointing to growth acceleration into 2014, such as:
The report also notes that the July 2013 Fed Loan quarterly survey released earlier in August indicates that more banks reported stronger demand for commercial development loans. This was the highest demand level reported since the late 1990s.
Part of the reason for the optimism in 2014 is the recovery of the country’s housing sector this year. Improvement in residential housing is an important component in the commercial market, according to analysts, since new homes boost both GDP and consumer spending.
In the past, a commercial real estate rebound has taken an average of eight months to take effect after a housing rebound. The shift into the fall and winter season, which are usually slower, could mean that further upturns in the housing data could be delayed until spring.
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